S&P raises U.S. credit outlook to stable

‘Grand bargain’ pressure drops, analyst says

WASHINGTON (MarketWatch) — Citing the strength of the U.S. economy and the dollar’s standing in the world, Standard & Poor’s on Monday raised its outlook on the U.S. credit rating — even as the ratings agency said Washington lawmakers have a “lesser ability” than others countries’ to deal with public finance pressure in the long term.

Getty Images

President Obama with Vice President Biden in January.

S&P raised its outlook on the country’s long-term credit rating to stable from negative, and said the U.S. has less than a one-in-three chance of another downgrade in the near term.

U.S. equity markets seesawed Monday, after initially rising in the wake of the S&P news. The Dow Jones Industrial Average
DJIA, -1.11%
and the S&P 500
SPX, -0.88%
were both in negative territory mid-Monday afternoon.

S&P on Monday also reaffirmed its AA+ long-term sovereign credit rating on the U.S.

The ratings agency said that it has seen “tentative improvements” on two fronts. It cited the year-end fiscal cliff deal between Democrats and Republicans that put in place tax increases and spending cuts. And, S&P said, stronger-than-expected private-sector contributions to economic growth combined with increased payments to the government from Fannie Mae
FNMA, -1.26%
and Freddie Mac
FMCC, -0.87%
have led to downward revisions of U.S. deficits.

Yields on the benchmark 10-year Treasury note
US:10_YEAR
are inching closer to the level seen before the August 2011 downgrade. On Monday, the 10-year was yielding 2.2%. On Aug. 4, 2011, one day before the downgrade, the yield on the 10-year was 2.45%.

Speaking on a conference call, Nikola Swann, S&P’s sovereign ratings director, said that the U.S. would risk a downgrade if there were a deliberate attempt by Washington to either increase deficits or forestall plans to cut the deficit. He also said it could be some time before the U.S. regains its Triple-A rating.

“Generally these things don’t happen in just a few years,” he said.

Rival ratings agencies Moody’s and Fitch, meanwhile, both now hold AAA ratings on U.S. debt. Both, however, have negative outlooks.

Treasury Secretary Jacob Lew has urged Congress to raise the U.S. debt ceiling without delay, but has said that the U.S. can take extraordinary measures until after Labor Day to keep the country from defaulting. Such measures include suspending sales of state and local securities. Read why the debt-ceiling fight is low-key, for now.

Eurasia Group analyst Sean West said that S&P’s move was an indicator that the U.S. is “materially improving.” He added that pressure for achieving a so-called “grand bargain” to trim the U.S. deficit “went from low to approaching zero.”

Don Stewart, a spokesman for Senate GOP Leader Mitch McConnell, said Monday that the Kentucky Republican believes that the U.S. must still address its long-term debt.

Democrats believe likewise. But the parties diverge on how.

Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, argued on Monday for achieving $1.8 trillion in deficit reduction through a mixture of spending cuts and tax increases. Republicans reject tax increases, however.

Meanwhile, another analyst said that while the S&P outlook doesn’t help the chances of getting a grand bargain, it does point to calmer negotiations on the debt ceiling this time around.

“I think the upgraded outlook largely reflects a growing belief that Congress will avoid dangerous political standoffs on issues like the debt ceiling in the future,” said Loren Adler of the Bipartisan Policy Center. “The improved fiscal picture might also help the coming debt limit debate go more smoothly.”

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.